Chinese jewellers see demand for gold drop

Sales of China's largest jewelry chain, Chow Tai Fook, were 17% lower in the past three months than in the first quarter of this year, according to the Financial Times. The decline in sales is largely attributable to declining demand for gold jewelry.

We can't say for sure why the demand for gold jewelry dropped, but it is obvious that the attention of many Chinese people has been focused on the stock market in recent months. Stock prices had risen sharply in the second quarter, which attracted many new investors to the stock market.

Especially in Hong Kong and Macau, the demand for gold jewellery decreased. Chow Tai Fook's branches in these areas saw their sales fall by 25% in the second quarter of this year compared to the first quarter. These are the places normally a relatively large amount of gold jewelry is purchased.

Stock market

Interest in gold in China has waned somewhat over the past six months due to rapidly rising stock prices. While the gold price continued to falter, the Shanghai Stock Exchange went up by tens of percent. As a result, many Chinese investors ignored gold for a while. The big question is what the Chinese will do now that the euphoria on the stock market is over.

According to the Swiss bank UBS, just over half of the wealth of Chinese households is in bank accounts and about 20% in equity portfolios. This means that the sharp decline in the stock market has only a limited effect on the total wealth of Chinese households.

No flight to gold

The total market value of the Chinese stock market is still relatively small relative to the overall economy, so the impact of the crashing stock market should not be overestimated either. According to Source Suchecki of the Perth Mint, it is therefore not to be expected that Chinese will suddenly be much less Buy gold, now that the value of the investment portfolio has decreased.

At the time of writing, there is also no sign of a flight from Chinese equities to gold. Suchecki notes that the demand for one-kilo gold bars is currently relatively low. According to Suchecki, Chinese gold banks currently have a lot of gold bars in stock and the premium is so low that they see no reason to buy more gold.

Chinese gold traders are trying to bring in new clients as investors say goodbye to their investment portfolios in disappointment. Previously, Chinese people had to take into account an entry threshold of a few thousand yuan to buy gold in storage, now they can do so from as little as 8 yuan (€1.25).

Will the deflation of the Chinese stock market give new impetus to the gold market?

Chow Tai Fook sees sales of gold jewellery drop